All posts tagged Libya

A ban on Iranian oil due to come into effect in July may be relatively painless for European consumers and businesses who are already suffering the highest road fuel prices on record, and they have Saudi Arabia to thank for it.

In fact, data published Thursday by the International Energy Agency shows how Saudi actions, from increasing its oil production to a 30-year high to storing millions of barrels of its oil at home and in its major markets, have eased the path for the tightest-ever Western sanctions aimed at pressuring Iran over its nuclear program.

If there’s one silver lining to the IMF’s cut of 1.5 percentage points in its economic growth forecast for EU growth in 2012, it’s that the slowdown could make it easier to implement the ban on Iranian crude oil imports agreed Monday.

Before Tuesday, the International Energy Agency was already expecting the struggling EU economy to see a fall in oil demand in 2012 equivalent to around a third of what the region imports from Iran. If the EU economy shrinks by 0.1% this year as the IMF has newly forecast, oil demand should fall even more sharply.

Add in the anticipated return of Libya to full pre-war production and it seems like Iranian crude might not be needed at all.

Bill Farren-Price, head of consultancy Petroleum Policy Intelligence said in a report:

“Ministers are agreed that failure to reach an agreement in December would damage OPEC’s credibility and there is a universal desire to make progress. The debate can be expected to be more diplomatic in tone…[but] there are still areas of disagreement.”

The December meeting will be taking place on dangerously shifting sands–rapid changes in oil production in Libya; tremendous uncertainty over the state of the world economy; and escalating political tensions between Iran and the West.

OPEC is about to face an interesting development—and one that will likely benefit European motorists from now on.

When it meets in December, the Organization of Petroleum Exporting Countries will host the new Libya. The fledgling oil democracy is part of a growing species in what was once almost exclusively a despots’ club. Already, the North African nation is making a spectacular return to oil markets after virtually shutting down its production amid the uprising that ended the 42-year rule of Moammar Gadhafi.

For Europe, which at times feels like it sits atop a house of cards, Libya’s come-back offers a bit of relief amid markets gone bipolar. The shutdown of the country’s oil and gas had worst affected debt-laden Italy which can really make do without the burden of additional energy bills.

So it was good news last week when Genoa-based ERG SpA said Libya’s returning oil was cutting into the price of crude feeding into Mediterranean refineries.

A message to foreign oil companies eager to pump Libyan oil again: don’t expect business as usual just yet. But once the war-torn nation puts its act together, expect a roaring oil tiger.

Neither totally at war nor really at peace, Libya still faces an uphill struggle to ramp up its production back to 1.6 million barrels a day—and to bring Africa’s largest oil reserves to European consumers.

In Tripoli, Martyrs’ Square—the emblem of the revolution that toppled Moammar Gadhafi last month—best encapsulates the transition the oil-rich country is facing after his fall.

On a Thursday evening the square is a surreal cross between family fairground and war zone: mothers push prams, and there is candy floss and bouncy castles. Also, pick-up trucks with mounted machine guns cruise around, Kalashnikovs burst in celebration and out of the blue, a man in djellaba pulls a gun out of his pocket and casually fires in the air.

A quick visit to the offices of BP, in a leafy neighborhood of Tripoli, confirms this unsettled atmosphere.

Full pre-war output of around 1.5 million barrels a day could be reached within 12 to 18 months because, “Libya has some of the best experts in the oil industry,” OPEC said. “If the National Oil Company is able to bring them together to start production as soon as possible, that period may be even shorter.”

This contrasts sharply with the view of the International Energy Agency, which said Tuesday it expects the full restoration of Libyan oil production to take at least twice as long.

Why? Because the IEA is doubtful that many of Libya’s oil facilities are safe enough for those oil experts to get to work.

The report lifted U.S. stocks. But Italy’s €6.5 billion bond auction Tuesday was, in the words of Rabobank analyst Richard McGuire, “horrible.” Indeed, the spread or interest-rate differential between Italian 10-year public debt and equivalent German bunds broke through the 4% level for the first time ever in the era of Europe’s single currency.

In the wake of controversy over Germany’s role in the Libya campaign, the rumor mill has been working overtime with suggestions the unpopular German Foreign Minister Guido Westerwelle is losing the support of his own Free Democrats party and could fall on his sword ahead of key regional elections in Germany.

But the Free Democrats, or FDP, poured cold water on the speculation. Party head Philipp Rösler Tuesday said Westerwelle will remain foreign minister and “the public debate is now over.”

The public debate is still simmering however, and has been since Westerwelle stepped down as party head and vice chancellor in April, after he was blamed for a series of defeats in regional elections.

Renewed questions over Mr. Westerwelle’s future as foreign policy chief were sparked by his recent statement implying the toppling of Libyan dictator Colonel Moammar Gadhafi was made possible by Germany’s policy of economic sanctions.

Many interpreted that as Mr. Westerwelle congratulating himself, whilst irritating Germany’s allies by discrediting the role of NATO in the conflict.

He shifted the message some days later, writing in the Welt am Sonntag newspaper that he “respects” what Germany’s partners contributed to in fulfilling the U.N. resolution on Libya, and that Germany is pleased that the Libyans overthrew Col. Gadhafi “with the help of international military intervention.” But even then he failed to mention NATO by name.

The Libyan rebels’ push into Tripoli Sunday night may end up being a bit of an anti-climax for the oil markets.

Reports of fierce fighting in the Libyan capital sent prices of European benchmark Brent tumbling nearly $4.00 in early Asian trade, but even as rebel troops advanced on Col. Moammer Gadhafi’s stronghold, Brent crude recovered most of its losses, while Nymex traded more than $1.00 higher.

The anticipated fall of Gadhafi’s regime is only the beginning of the end of a six-month conflict in Libya, which knocked out the country’s 1.3 million barrels of oil exports.

While prices have come under short-term pressure, uncertainty remains over what the new regime will look like.

There is no magic button that can be pressed to restart the flow of Libyan production, and far more important for oil prices than Gadhafi’s exit will be clarity on when the country will resume oil exports.

Traders have been left questioning the International Energy Agency’s motives for its emergency stock release this month as demand for barrels on the physical market remains weak. International oil markets were thrown into turmoil by the IEA’s June announcement that it would release 60 million barrels from its emergency stockpiles to meet a shortfall of barrels caused by the loss of Libyan oil exports after violence broke out in the country in February. But lackluster demand in the physical markets seems to suggest such a move was hardly necessary. In the North Sea, prices for physical crude have fallen to their lowest since the beginning of the year, while the premium traders pay above benchmark Brent crude for Nigerian oil has also tumbled amid flagging demand. In North America, the market is abuzz with talk of traders seeking to charter oil tankers to store crude off the U.S. Gulf ahead of the release of 30 million barrels from the U.S. Strategic Petroleum Reserve. Amid much market grumbling, the IEA has sought to clarify its motives for the emergency stock release. [Read on over the jump]